Sign Alaska Banking Agreement Later

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many of you have probably got mail at one point or another telling you the terms and conditions of your cell phone contract your internet service or credit card that these terms have changed maybe some of you have diligently examined these changes but I'm guessing most of you haven't today we're going to look at beneficial National Bank versus Obi Peyton a 2000 in one case out of the Southern District of Mississippi which will help us figure out whether and why you might be contractually bound by these change of terms even if you've never read them we'll also discuss arbitration clauses an increasingly important element of the contracts we consumers often sign so Obi Peyton the defendant bought a home satellite system in 1995 he paid for that purchase during his credit using his credit card account with beneficial National Bank the cardholder agreement and disclosure statement which accompanied Peyton's credit card agreement with the bank read in part by applying for an account or signing the application or using this account you agreed to the terms and conditions contained in this agreement and the terms and conditions contained in the application which you and we agree as part of this agreement but it also included a provision which read we may change the terms of this agreement with respect to both existing balances and future purchases a year later beneficial National Bank sent a notice to Peyton and all its other card holders advising of changes to the cardholder agreement the notice added an arbitration clause to the agreement stating any claim dispute or controversy controversy whether in contract tort or otherwise arising from or relating to this agreement or the relationships which result from this agreement including the validity or enforceability of this our tration Clause or the entire agreement shall be resolved upon the election of you or us by binding arbitration pursuant to this arbitration provision and the code of procedure of the National arbitration forum in effect at the time the claim is filed the notice also provided that card holders have the option to notify us before the aforesaid 30-day period has elapsed that you do not agree to accept these changes by writing to us in the absence of your giving us such notice you will be deemed to consent to the changes a couple years later beneficial Bank assigned Peyton's credit card account to another financial institution household bank the notification of this assignment also included in arbitration clause like the beneficial Bank a modification that was introduced in 1996 in 2001 Payton sued the bank in the state court alleging fraudulent misrepresentations another wrongful conduct in response the banks filed a federal action to compel arbitration they argued that Payton suit in state court was governed by arbyrd the arbitration clause and Payton's cardholder agreement and so Payton had no choice but to resolve his allegations against the bank through an arbitration process the district court ruled for the bank's agreeing that Payton would have to bring his claims against them to arbitration Payton offered three primary arguments for why the arbitration clause should not bind him first he argued that the change of terms provision in the original agreement only contemplated changes to existing terms not the introduction of entirely new ones like an arbitration clause second he argued that his silence is mere failure to reject the change terms of the contract did not constitute acceptance of those terms and third he claimed that the arbitration clause did not apply retroactively Lee and that the wrongful conduct he alleged had taking place before the addition of the arbitration clause to the agreement the trial judge rejected all three arguments but the second argument is the one we're going to focus on today payton relied on a california case long versus fidelity water systems for the notion that his failure to reject the terms amounted to acceptance of them at issue in that case was an arbitration clause in a credit card account agreement with household bank that liked the clause in this case was added to an original agreement that AG Rijal agreement reserved the right to change certain terms the arbitration clause similarly permitted the cardholder to decline the new terms the court in long found quote defendant never obtained any affirmative consent from the plaintiff regarding incorporation of the arbitration clause as part of the existing contract rather defendants required the plaintiff to take affirmative action if he wished to reject the incorporation of the unilateral arbitration clause the Ninth Circuit has held that before a party to a lawsuit can be ordered to arbitrate and thus be deprived of a day in court there should be an express unequivocal agreement to that effect but the court relied instead in this Obi Payton case on a different decision a different precedent Bank One versus Coates another case out of the Southern District of Mississippi an opinion which calmly the very same judge as in this beneficial Bank case had written the opinion that case emphasized that when determining whether parties had actually agreed to arbitrate a dispute the court had to look to federal arbitration law which addressed the question with quote a healthy regard for the federal policy favoring arbitration the intention of the party should be generously construed as to the issues of arbitrability a court could grant relief to the party opposing arbitration but the standards for doing so were high when he or she presented well supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds for the revocation of any contract applying the principles set out in that case the court ruled for the banks the banks relied on section 4 of the FAA the Federal Arbitration Act in bringing their motion to compel arbitration this section provides that a party aggrieved by the alleged failure neglect or refusal of another to arbitrate under a written agreement for arbitration may petition the United States District Court which save for such agreement would have jurisdiction for an order directing such arbitration to proceed in the manner provided for in such agreement the Federal Arbitration Act the FAA was enacted in 1925 but it wasn't until the 1990s as in this case that the arbitration clauses came to be used widely in contracts between businesses and consumers can you think of some of the reasons companies might prefer private arbitration to contesting allegations in court well some possible reasons are that the arbitration process generally is in public and the parties involved often by agreement may not disclose the results arbitration decisions usually aren't appealable and the process is cheaper for the company there's also the lingering concern that arbitrators are less likely than jurors to render verdicts favorable to consumers or employees there's been a lot of recent focus on how arbitration agreements also allow companies to avoid class-action lawsuits this case gives us a good opportunity to talk about mandatory rules versus default rules as we've discussed before a mandatory rule in a contract law it's just what it sounds like it's a rule that parties cannot contract around the UCC notes some mandatory rulz it contains some mandatory rules parties cannot contract out of the requirement of good faith for instance by contrast to default rule is a rule that governs a contract if the parties haven't specified some something contrary default rules can be contracted around and altering rules are the rules that say that specify the conditions for contracting around parties if they explicitly include an altering rule can deviate from the default in their own contracts with that in mind think of what the default rule for acceptance is in this case well to begin with by default silence is not a way to accept a contractual offer indeed even though an offer or is master offer offer and can accordingly in the offer to find the ways it might be accepted the rule that offeree silence cannot operate as acceptance is somewhat mandatory I can walk up to someone on the street and say I offer to buy your coat for 10 cents and your silence will operate as acceptance that would allow offers to unreasonably impose on the stranger offer ease time and attention and so at common law silence as by default does not operate as acceptance even if the offers tries to make it so but as we mentioned in the last class Restatement 69 does provide for three exceptions where silence can operate as acceptance let's review them again the first exception isn't really an exception it says it's the offeree after having a reasonable opportunity to reject the offer takes the benefit offered there's an acceptance but in this instance the offer is conduct creates a contract implied in fact there really is in silence the second exception is perverse because it seemingly requires the court to adopt a subjectivist approach toward for re intent remember normally contract log goes by external x' how would the reasonable observer the reasonable listener interpret the other person's words or conduct but section 69 instead says silence can operate as acceptance if the offeree in remaining silent intends to accept the offer but how is the court to determine this intent from externals if the offeree is silent and inactive the third and final exception is closest to the Paton case and where most of the action is it says that silence can operate as acceptance if previous dealing or something else makes it reasonable that the offeree should notify the offer or if he or she does not intend to accept the change of terms provision in the initial contract might qualify as just this kind of previous dealings but the provision is a bit opaque or one might even say misleading the provision remember says we may change the terms of this agreement with respect to both existing balances and future purchases but the parties to any contract may always change the terms of the contract by subsequently both agreeing to modify the contract the real effect of these change of terms clauses seems to be to allow customer silence to operate as a sent after the bank unilaterally sends a notice of modified terms where this notice is formally an offer to modify the initial contract the initial change of terms provision might be attacked a bit like Williams versus Walker Thomas furniture for not making clear what exactly turns on the provision but that's not the conclusion of the court instead the Court finds that Payton silence operates as acceptance or to put it in default terminology by default customers accept all modification offers the default legal and Cesare what Simon and Garfunkel might call the sound of silence and hear silence means acceptance not explicitly rejecting terms indicates acceptance of them but in the long case from California we that we excerpted the court did not apply the same default in that case it instead required express assent meaning that the default meaning of silence was rejection of the modification offer so what are the downsides of each of these default rules a default of rejection certainly increases transaction costs but a default of acceptance which the court in Payton applied may also increase unfairness binding consumers to terms which they never agreed to or even knew about several jurisdictions have passed versions of the Uniform consumer credit code this is different than the UCC it's the UCC C and section 3 point 205 make silence as acceptance the default with regard to consumer credit contracts indeed its language may even go further than the cases we've discussed here it says whether or not a change is authorized by prior agreement a creditor may change the terms of an open-end credit account applying to any balance incurred before or after the effective date of the change this statutory language suggests creditors can unilaterally modify the contracts even when there is no expressed change of terms provision in the initial credit agreement or even cancel their contracts if the consumers object the comment to the uniform provision argues that in insurmountable difficulties would confront such creditors work necessary for them to obtain from each consumer his or her signed consent to a change in terms because experience indicates that only a minority of customers take the trouble to return and Express approval or disapproval of a change in terms think of all the mail you get that you probably think is junk and don't look at precisely because you're not expected to look at such mail you may become bound by its terms so what have we learn from this case we've learned that in consumer credit contract unilateral modifications to the contract often will be accepted by silence and we've discussed some pros and cons about that policy about that default we've learned a bit about arbitration clauses and finally we've learned that you probably would be wise to read your mail carefully